equity, real assets, and hedge funds. These private investments, by
their nature, are wide-ranging in the use of sophisticated investment vehicles, structures, and strategies, and as a result it is difficult to characterize the underlying instruments. A prime example
is the area of commodities. Investing in commodities can be
accomplished in a variety of manners, such as futures contracts,
outright purchases of the commodity itself (or the land holding the
commodity), equity markets that directly link to commodities, or
even via commodity-based hedge funds. Each of these subcategories will perform differently in many economic environments.

Endowments make idiosyncratic choices to include or to exclude
specific types of investments among this broad universe—and
define their asset categories accordingly.

Second, many modern investment types and vehicles blend attri-butes across traditional category boundaries. Take the case of aprivate fund of senior credit debt instruments. These investmentscombine elements of fixed income (regular cash payments), privateequity (capital tied up for five to seven-plus years), credit risks(counterparty difficulties), levered securities, and the risk of capitalcontributions under adverse circumstances. Where should theseinnovative products be placed? Facing these issues, endowmentshave chosen alternative solutions with varying asset-categorydefinitions.

Another step in the evolution of asset allocation is the broad adoption of factor approaches to identify drivers of performance. For
instance, the UVA endowment notes common factors within its
combined private and public equity category. The private debt fund
mentioned above might have equity, bond, and even currency factor exposure, as might more typical high-yield bond portfolios.

The Harvard endowment (Blyth et al. 2016) employs factor-based
methods in an attempt to unravel the complexity of the current
investment universe. Other large institutional investors are working on similar concepts (e.g., Ang 2014).

A related approach is to segregate investments by their anticipated
performance characteristics. The Berkeley endowment has chosen

Table 7: Examples of Functional Categories and Aggregations with Three Components